Blog

Westpac is tightening conditions on its savings account for younger customers as growing numbers of banks make it harder to earn advertised interest rates on their deposits.

The bank has joined smaller competitors in changing interest-related restrictions on some accounts – despite the Reserve Bank of Australia leaving interest rates on hold in September.

Conditional accounts, such as Westpac’s Life account, help banks access customers’ money and finance their lending business at a discount, according to Australian Competition and Consumer Commission analysis, because two in three savers miss out on their headline interest rate.

In November, Westpac will quadruple the number of transactions required to achieve the full 5% rate for 18 to 29-year-olds with Life accounts, from five a month to 20.

Customers who fail to deposit and increase their balance each month already see their interest slashed to just 0.25%. Savers who meet those conditions but make fewer than 20 payments from a linked spending account will see their rate drop to 4.25%.

The changes push customers who spend and save with different institutions to move all their banking to Westpac, according to Andrew Grant, associate professor at the University of Sydney business school.

_{Sign up: AU Breaking News email}

“The only way you’re going to get [the 5% rate] without making a conscious, costly, time-consuming effort [to] achieve that goal is by just using it as your main bank,” Grant said.

Westpac holds about a fifth of all Australian households’ deposits and about a fifth of home loans.

Locking in younger customers would deliver Westpac more future home loan business, while deterring savers from shopping around for better rates at other banks, reducing competition, Grant said.

Some customers, deterred by the difficulty of reorganising their finances, told Guardian Australian they planned to focus their spending on the bank.

“I could change my savings setup so I don’t use this Westpac account that has that condition, but I think it’s more likely I’d have to just be very vigilant,” one 21-year-old student, who did not wish to be identified, said.

The changes will also broaden account eligibility to include 18 to 34-year-olds. A Westpac spokesperson said the changes would ensure those who chose to spend and save with the bank were rewarded.

Restrictive conditions have become more common in Australia over the past 20 years and now apply to more than half of the savings options in online database Finder.

While Westpac is the only bank requiring 20 transactions, nine other banks now require savers to spend each month to get their full interest, according to the financial comparison site Mozo.

Bar chart showing how banks have slashed the base interest for savings

Over the past decade, banks have reduced the base interest component on conditional accounts while making their no-strings alternatives less attractive. While bonus accounts in September offered annual interest of 4.05%, as they did in 2013, regular accounts offered just 1.3%, compared to 2.35% in 2013, RBA data shows.

skip past newsletter promotion

after newsletter promotion

Strings attached

Some banks have added requirements to accounts that once had no strings, such as ANZ’s Plus account and Ubank, NAB’s youth brand, which has regularly changed the conditions on its savings account.

From October, Ubank customers will receive no interest unless they deposit more than they withdraw each month. Customers had previously only been required to deposit $500, which they could withdraw as they wished.

Interest tiers have also been simplified to apply to balances up to $1m. The Ubank chief product officer, Andrew Morrison, said the changes made accounts easier to use and responded to customers’ desires to grow their savings.

Others have tightened existing restrictions, with AMP and Unity upping the amounts by which customers must grow their accounts in 2025, according to Canstar analysis.

Up, Bendigo and Adelaide Bank’s youth brand, began requiring that customers avoid withdrawing money or face slashed interest as part of a package of changes in September. The bank’s chief executive, Xavier Shay, said the changes were in response to customer demands.

Stricter requirements make it more costly for customers to access their money, according to Andrew Hingston, lecturer in personal finance at the University of New South Wales.

“Even withdrawing a small amount, like $200 to pay a bill … you’re forgoing quite a bit of interest to do that,” Hingston said.

“Not having a requirement to grow, that was a lot more flexible, a much better system.”